Worldwide Exchange of Information Agreements and an immense Artificial Intelligence (AI) database called Connect, are allowing HMRC to cross check activity, and enormous information sources, to track down Expat individuals who either knowingly or innocently choose not to report income or gains in the UK which remain subject to UK tax.
The economic impact of COVID-19 is expected to sharpen HMRC’s focus and approach, in terms of generating much needed additional revenue receipts for the UK, to simply ensure best use is made of this unprecedented volume of information.
Even before COVID, HMRC statistics demonstrate that in 2018/19, 867 Expat individuals admitted failing to pay UK tax, which compares to just 66 in 2017/18. Of these 867 cases, it is interesting that 40% were tax residents of the Channel Islands, and 10% from the Isle of Man, both jurisdictions perhaps seen in the past as tax havens for British Expats, away from the scrutiny of HMRC. The message, it seems, is that Big Brother, in the form of HMRC, really is watching, wherever you are in the world.
Changes in UK Tax affecting Expats
HMRC have additionally been actively pursuing overseas buy-to-let landlords, many of whom are British Expats rather than wealthy foreign investors, issuing thousands of letters in 2019 to track down those who haven’t declared rental income. However the rise in disclosure cases will also partly be attributed to Property Tax reforms affecting overseas individuals in recent years, including:
- 2015 - Capital Gains Tax (CGT) liabilities on sales of UK residential property , which after April 2019 includes commercial land and property
- 2017 - Inheritance Tax (IHT) exposure on UK property, even if now owned or retained in corporate or trust structures. (Prior to 2017 companies were used to hold property as an effective method of sheltering the asset from UK IHT exposure).
HMRC on the hunt…
Disclosures are largely driven by HMRC issuing ‘nudge’ letters, notifying the individuals that they have information to suggest UK sourced tax liabilities may be due, but not necessarily specifying any details, effectively challenging them to agree their UK tax affairs are correct, or disclose any undeclared sources. The consequences of not disclosing, or just getting it wrong, are significant in terms of potential penalties and an experienced professional advisor should definitely be consulted in each case.
Our Global reach and considerable International Tax Resolution experience means that we are perfectly placed to deal with any HMRC enquiry or disclosure.
If you are resident overseas, hold UK assets, and are at all concerned there may be an exposure to UK tax that needs to be reported, or would like to discuss short or long term UK Tax mitigation strategies, please get in touch with Lynn Gracie, Private Client Tax Director.